Use the following to answer the next 7 questions:

Tom wants to buy a house priced at $500,000. He plans to put 20% down and a mortgage banker will lend him the remainder at a 6% fixed rate for 30 years, with monthly payments to begin in one month. Tom is required to pay 2 points.

1. How much will his monthly payments be? a. $2,350.24 b. $2,398.20 c. $2,937.80 d. $2,997.75

e. $3,075.75

Monthly installment

= P x R x [(1 + R)ⁿ ] [(1 + R)ⁿ - 1]

Here,

P = 50000 * (1 - 20%) = 400,000

R = 6% Pa Or .5% per month

n = 30*12 = 360 months

= 400,000 * .005 * [(1.005)³⁶⁰] [(1.005)³⁶⁰ - 1]

= 2000 * 6.02 5.02

= $ 2398.20 approx

2.Tom has a monthly income of $11,000. Tom estimates annual real estate taxes as 1.25%, annual hazard insurance as 0.4%, and annual maintenance as 1% of the purchase price. At closing, Tom will have to fund 6 months of property taxes, and 14 months of hazard insurance. What is the housing expense ratio? a. 0.28 b. 0.32 c. 0.34 d.0.37 e. 0.42 3. Based on the information provided above what is the monthly payment ratio if Tom has an outstanding installment debt with monthly payments of $750? a. 0.31 b. 0.35 c. 0.39 d. 0.44 e.0.49

4. Based on the information provided above what is the amount of the move-in costs? a. $100,000 b. $108,000 c. $113,458 d. $118,458 e. $132,086

5. Assume Tom repays the loan after 8 years. What is the effective borrowing cost (EBC) on this loan? a. 6.19% b. 6.34% c. 6.47% d. 6.70%

6. If the lender requires that the housing expense ratio be at most 25%, what is the maximum monthly mortgage payment the borrower would qualify for? a. $2,750.00 b. $520.83 c. $166.67 d. $2,358.59 e. $2,062.50

7. If the lender requires that the housing expense ratio be at most 25%, what is the maximum loan amount the borrower would qualify for? a. $344,000 b. $375,000 c. $325,000 d. $500,000 e. $400,000